Transcript Ericsson - 2005

Best-in-France Case Study
10th January 2005
By: Mr. Ken Murphy, Mr. Jae-Ho Choi, and Mr. Philippe de La Fortelle
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Executive overview
• Ericsson France is our company of choice for analysis
• France is one of the few countries in Europe where
Ericsson has NOT earned a major infrastructure contract
– Why is the world leader struggling in France ?
– What explains why France is still one of Ericsson’s top priorities ?
• Ericsson is a strong global corporation, present in 140
countries, with a customer base of 425 networks
– What are the specificities of the French market ?
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What is Ericsson ?
• Ericsson is a major Telecom vendor
– Originally a manufacturing business for communications
equipment founded in Stockholm in 1876
– Today an international market leader in the development and
supply of end-to-end solutions to network operators for mobile and
fixed line communications
– Offers a range of mobile handsets through the Sony Ericsson
Mobile Communications joint venture
– Offers a variety of technology, equipment and services for private
enterprise networks as well as for special applications such as
military radars.
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Ericsson’s subsidiary in France
• Ericsson came to France in 1911 (factory in Colombes)
– Created a joint-venture with Matra (M.E.T) in 1987
– Created Ericsson France (100% owned) in 1998
• Business: Telecommunication equipment & services
• 2004 Ericsson key figures worldwide for 9 months:
– Sales of 10.3 billion Euros, 13.5% increase from 2003
– Net income of 1.4 billion Euros, 5.5% increase from 2003
• 2003 Ericsson France key figures
– Relatively small sales of 81 million Euros…
– …compared to Ericsson’s worldwide 13 billion Euros!
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Ericsson France has shrunk over time
• No R&D or manufacturing done anymore in France
– Factory in Longuenesse sold to Solectron in January 2000
– R&D workforce taken over by Teleca in 2002 (188 employees)
– 580 people made redundant over the four last years
1400
Ericsson France's key figures over last years
(Figures for 2004 are targets)
1200
1000
Headcount (#employees)
Sales (M€)
800
600
400
200
0
1998
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1999
2000
2001
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2002
2003
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Ericsson France's customers
• Main customers:
– French mobile operators (Orange, SFR, Bouygues Telecom)
• 75 to 80% of sales
– Wireline operators (France Telecom, LDCom, other…)
– Regional administrations (Public wireless networks,…)
– Distributors (Indirect sales channel to private companies)
• What are customer’s expectations?
– End-to-end solutions with good service at lowest price
• Importance of presence in France
– Major customers (e.g. Orange)
– Huge sales potential
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Company values
• Ericsson’s Core values:
– Professionalism, respect and perseverance
• This fits quite well in the French environment
– Perseverance is key with a struggling subsidiary
• Relationship building takes time and efforts
– Respect and professionalism are key to keep good relationships
between subsidiary and corporate headquarters
• Respect for other cultures
• Professionalism in an international and competitive
environment
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Reasons to go to France
• Ericsson is a global player
– Present in 140 countries
• The business cannot be driven from afar.
– World leader in telecom infrastructure (40% Market Share)
• Why was France a key target location
– Proximity to Orange is very important
– France is one of the largest markets in Europe
• Huge market in terms of population & GDP
• Ericsson is leveraging on a highly qualified workforce in
France
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Constraints in France (1/2)
• Before entering the French market:
– Constraints were mainly due to the late deregulation of the French
telecommunication market
– France Telecom main player – decision maker was the French State
– Ericsson had no structure in place to build strong relationships with the
administration
• Partnerships with established companies were required
• A bad strategic partnership to buy State-owned CGCT ?
– Successful entry to the French market just before mobile boom
– Agreement with Matra to source only core network equipment
• Let Matra source the access part of networks (volume)
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Constraints in France (2/2)
• After entering the French market:
– The 35-hours law was applied successfully in year 2000
– The telecommunication crisis hit the French market as hard as other
countries:
• Four redundancy programs were implemented from 2000 to 2004
• Discussions with unions and French labor laws increased the
overall cost of the local restructuring program
• Other countries reduced headcount quicker and with less cost
• The French have a strong cultural identity that is somewhat
resistant to change
– Operators suffered cash-flow and debt problems, and therefore
decided to decrease their investments
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Adaptation to France (1/3)
• Adaptation to labor rules and fiscal policies
– 35 hours/week has been implemented without problems
– Number of expatriates has been minimized
• Most employees (all managers) are French
• Adaptation to other French specificities
– Relationship management is seen as the key critical success factor
of sustainable business in France
• This is a weakness in Ericsson France’s past situation
– The French alumni network (“Grande Ecoles”) is more powerful
than in another countries
• This is another reason why the top management of Ericsson
France is entirely French
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Adaptation to France (2/3)
• Adaptation to other French specificities (cont’d)
– Slow and complex decision-making (with many stakeholders
involved including the State) complicates the business
• Government has a say in major contracts with France Telecom
• Understanding the decision process requires a good network of
contacts and power of influence
– It is therefore important to establish relationships not only with
business customers and partners; but also with politicians and
opinion leaders
• E.g Minister of Industry, ART (regulation authority), etc…
– Culturally: There is a difference is decision making styles. Both
parties have had to adapt somewhat to the other’s style.
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Adaptation to France (3/3)
• Adaptation to the French market
– Adapt to lower margins on equipment by increasing share of
services in sales:
• Management by service sales objectives
– Service results of Ericsson France turned out to be very good
• French service manager has been appointed corporate
manager to leverage on his expertise
– Adaptation to relationship barriers to entry:
• Acquisition of Audilog in 2004
• Audilog is already well established in integration services with
French operators
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Key Costs
• What are the key costs of operating in France that are more
or less than operating in other locations?
– HR type costs (hiring, paying, training, dismissing, etc.) are similar
as in other countries (Netherlands, Italy) but higher than in Sweden
or in Belgium
– Communication constraints (language, infrastructure communication
costs, etc.) are important and often hidden
• Good relationship management requires perfect communication
skills
– Integration of French managers into global organization
• French managers are preferred locally for cost and lobbying
reasons, and they easily integrate the corporate organization.
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Key Benefits
• What are the key benefits of being in France?
– Location benefits
• Quality of life in France is very well perceived in Sweden
• Swedish support to the French subsidiary is often enthusiastic
– Market Potential
• Proximity to major customers like Orange is a must
• French market is growing, and the telecommunication industry
is recovering after four difficult years
• France represents a huge potential for Ericsson: to date no
major contracts have been signed in France
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Essential Advice
• Advice to other companies in the telecommunication
industry sector about France as a location?
– Before going to France:
• Prepare the battlefield through a partnership or a local agent
– Adaptation while in France:
• Invest a lot in relationship management and cultural adaptation
– Future investments from France:
• France is a gateway to other countries
• E.g. Nortel has chosen France as the Development center for
Europe
• Ericsson France could also create an R&D center close to a
French customer to gain a major European infrastructure
contract.
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We would like to thank:
• Manager 1: Abdelkrim Benamar, Vice President, Strategy
and Business Development
(Ericsson France)
[email protected]
• Manager 2: Steve Newman, Progam Director for
Executive Development
(Ericsson corporate)
[email protected]
• Manager 3: Nuri Shakeer, Business manager
(Ericsson corporate)
[email protected]
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Bibliography
• Ericsson’s annual reports and web sites
(www.ericsson.com)
• “Ericsson, taking you forward”: vision, values and
determination - booklet by Ericsson’s CEO,
kindly provided by Steve Newman
• “Pour un écosystème de la croissance – rapport au
Premier Ministre”, Chistian Blanc
kindly provided by Abdelkrim Benamar
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Our Team
• Mr. Ken Murphy / [email protected]
• Mr. Jae-Ho Choi / [email protected]
• Mr. Philippe de La Fortelle / [email protected]
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Appendix slides
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Appendix 1 – Interview Guide
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Appendix 2 – Press release
Ericsson acquires the French systems integration company Audilog
Date: Wednesday, September 22 2004
Ericsson has today announced the acquisition of the French company Audilog, specialized
in systems integration in the area of network management. Systems integration,
supporting telecom operators in creating competitive consumer service offerings and
efficient business processes, is a strategic area in the Ericsson Global Services
portfolio. The acquisition of the French company Audilog reinforces Ericsson's focus on
growing its services business. Audilog has for two decades worked closely with leading
operators in France and on international markets in securing quality of network and
consumer service performance. "I am pleased to announce this acquisition that will
increase our capacity to support operators in capturing revenue growth while controlling
costs," said Hans Vestberg, Senior Vice President, Business Unit Global Services.
"Audilog's skills and experience in network management fits perfectly with our
competence and our leading telecom management and systems integration offering."
"We are proud and excited to be part of the Ericsson group," said Mr Waksman, CEO
Audilog. "Working with systems integration it is a great strength for us to belong to
Ericsson, the world's largest telecom services company. The leadership and long-term
experience of Ericsson will facilitate new business opportunities and competence
development." Ericsson is industry leading in systems integration of new consumer
services and operator business processes, creating value for consumers and
profitability for operators. As networks, systems and business models become more
complex, Ericsson partner with operators to create an environment for efficient
business operations and innovative business development. This includes supplying
solutions in the service layer and telecom management domains (service provisioning,
network management, service assurance and revenue management).
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Appendix 3
Per Month
• Revenue per user (ARPU) is still the highest in Europe, with high
potential growth
• Degree of competition is second lowest
France
Germany
Italy
Spain
Swede
n
UK
Source: Forrester Dec 2000
Source: CSFB, Morgan Stanley, 2000
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Appendix 4
The telecom crisis 2000 - 2004
Bouygues
France Telecom
Vivendi Universal
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